Value is subjective, and marginal utility is ordinal, not cardinal. However, I am a bit lost in trying to rebutt the Neoclassical Demand Curves. Any suggestion:
In addition to the marginal utility theory, the cost of diamonds versus water can also be understood by looking at the demand curve for water.
For most consumers in the US, there is enough water so that its price falls low on the demand curve, in the inelastic range of -0.30 to -0.40. In other words, it is plentiful enough that if the price goes up by 10%, consumers would cut down usage by only about 3% to 4%. For larger price increases over longer periods of time, then the price becomes more elastic and consumers would take measures like not watering their lawns or installing low-flow shower heads to reduce their water usage by larger amounts. And in the case of extreme drought where there is just barely enough water for drinking, the price would become very inelastic and skyrocket. In that situation, a year’s supply of water would likely cost more than a diamond!
So by looking at the demand curve for water, we can see that there really is no diamond-water paradox and that if water were in really short supply, its price would rise to reflect its true survival value.